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THE BREAKFAST BRIEFING

The Fed’s efforts to keep interest rates extremely low and maintain its easy money policies have been among the main catalysts that have pushed the prices of stocks and bonds into unprecedented territory. Those same efforts are also among the biggest risks lingering in the markets: Once the Fed pulls back on the stimulus spigots, there’s no telling what happens next.

At yesterday’s gathering in New York, billionaire investor Stanley Druckenmiller showed a slide during his presentation that illustrated the impact several QE programs have had on the S&P 500. More stimulus has correlated to bigger stock gains. When the Fed has temporarily backed off, stocks have suffered.

Even a kindergartner could figure out what’s happening, Druckenmiller said.

The problem is QE also raises questions about the sustainability of the rally and the unintended consequences that may result from such efforts. Are markets artificially propped up because of Fed stimulus? How much do the underlying fundamentals drive the action? Does hyper-inflation lie on the horizon after all this money printing? Can the economy grow on its own without the Fed crutch?

Druckenmiller blasted Fed Chairman Ben Bernanke, calling QE a “nuclear weapon.” He said the central bank’s policies are warping the financial world’s asset prices, and ultimately will end very badly.

“Were the Fed to signal the end of QE … the bull market would end,” he said.

The hope is Chairman Bernanke (and eventually his successor) will be able to engineer a gradual exit from the Fed’s $85 billion monthly bond buying program without creating too much fuss in the markets Goldman Sachs economist Jan Hatzius earlier this week told clients he expects the Fed to start the “tapering” process either later this year or early next year, an estimate that sits roughly in-line with the view of many economists.

Until then, investors are expecting the rally to keep chugging along. There’s little reason to expect it won’t.

But if some of the biggest names in the hedge-fund community are right, watch out for what lies on the horizon.

Morning MoneyBeat Daily Factoid: On this day in 1974, music critic Jon Landau watched a concert in Massachusetts and followed up with a review that contained these words: “I saw rock and roll future and its name is Bruce Springsteen.”

-Steven Russolillo

STOCKS TO WATCH

Tesla MotorsGreen Mountain Coffee RoastersGroupon, and News Corpare likely to remain active Thursday after reporting results the previous day. Tesla said it broke even in the first quarter, recovering from a loss of 86 cents a share a year ago. Green Mountain reported a fiscal second-quarter profit of 87 cents a share, handily beating Wall Street’s estimate of 73 cents,

Groupon reported a loss of a penny a share on revenue of $601.4 million in the first quarter.

News Corp.said its fiscal third-quarter earnings rose to $2.85 billion, or $1.22 a share, from $937 million, or 38 cents a share, in the year earlier period. The media conglomerate is the parent of Dow Jones & Co., publisher of The Wall Street Journal.

Carlyle Group is projected to report first-quarter earnings of 94 cents a share, according to a consensus survey by FactSet.

MUST READS (LINKS)

Sony Swings Back To Profit: “The Japanese electronics titan said it made a profit in its fiscal fourth quarter, lifted by one-time gains from the sale of office buildings and shareholdings.”

MoneyBeat: Graffiti Artists Take on the Euro Crisis: “Now there is a graffiti street art project commenting on the crisis, and other themes, taking place outside the construction zone of the new ECB headquarters in Frankfurt, of which the central bank has provided around €10,000 ($13,153) in support.”

Earnings Not Yet a Viral Sensation: “Across the U.S., earnings season came and went with few signs that companies are taking advantage of the SEC’s green light to tweet or post market-moving information.”

Deal to Cut Ex-Enron CEO’s Sentence: “Enron’s former president and CEO Jeffrey Skilling and the Justice Department have reached an agreement that would cut his federal prison sentence to as little as 14 years from 24 years.”

Help Wanted: Hiring, Not Just Fewer Layoffs: “Jobless claims—at their best level of the expansion—may not signify a completely clean bill of health for the economy. A slowdown in layoffs has to be coupled with an improvement in hiring.”